Music streaming giant Spotify is in “advanced talks” to buy SoundCloud, a rival streaming service famous for catapulting early bands to stardom, and for fostering a sense of artist community, the FT reports.
SoundCloud was last valued at about $700 million, when it raised ~$70 million from Twitter in 2016, according to Recode. SoundCloud confirmed that Twitter invested, but didn’t confirm the valuation. Spotify was last valued at $8.5 billion in June 2015, according to The Wall Street Journal.
Though Berlin-based SoundCloud has many devotees among artists and fans, the service has struggled to gain strong financial footing. Financial filings reviewed by Music Business Worldwide earlier this year showed that the streaming service lost $44.19 million in 2014 on revenues of $19.37 million.
In March, SoundCloud launched a new premium music-streaming service, SoundCloud Go, to more directly compete with the likes of Spotify and Apple Music.
SoundCloud Go has the bells and whistles users have come to expect from an on-demand service. It’s priced at $9.99 a month, is ad-free, allows offline playback, and gives access to a broader catalog of music. But its interface, which tries to integrate the “premium” tracks with the “free” ones SoundCloud built its following on, is difficult to navigate.
SoundCloud has over 175 million users, but it’s unclear how many signed up for SoundCloud Go.
Spotify has had its own struggles with profitability, but has grown into the biggest player in the on-demand music market. Spotify has 40 million paid users, and over 100 million actives, as of September. Spotify lost $194 million last year, and is reportedly looking to IPO in the second half of 2017.
Competition in the streaming music market is heating up in the waning months of 2016. Pandora, radio giant iHeartMedia, and Amazon are all set to launch their own on-demand products. They join a tense battle between Spotify and Apple Music (17 million subscribers as of September), which has seen the companies spar over not only users, but also the concept of exclusive album releases.
Tidal, Jay Z’s music streaming service, has also continued to try and build a user base, and has attracted Apple acquisition rumors, which Apple has denied.
The biggest question mark in the industry right now is whether any of the major players will be able to turn to profitability in the near future. One reason is the high percentage of revenues they pay to labels. With a SoundCloud acquisition, Spotify could be inching toward an attempt to cut labels out of the equation by striking direct deals with up-and-coming artists.
Spotify and SoundCloud declined to comment.